I understand that it’s a challenging period for a traditional automaker to sell electric vehicles, especially with incentives being reduced and the emergence of Chinese automakers. However, Honda seems to be taking it to an extreme.
Recently, Honda decided to terminate its limited and not very promising EV ventures. The slight motivation Honda had to compete in the EV sector seems to be gone, along with any hope of surviving the current industry disruptions.
The company blamed U.S. tariffs and Chinese competition, two convenient targets. However, it never really had a solid EV strategy in the first place.
Honda started by discontinuing the development of the electric Acura RDX and the Honda 0 sedan and SUV on Thursday, three models that were its initial ground-up EVs but shared little information publicly. By Friday, Automotive News reported that Honda would cease production of the Prologue, a vehicle primarily designed and fully built by GM.
This decision could backfire in several important ways. By shelving EVs, Honda risks lagging behind in two major industry transformations: electric drivetrains and software-defined vehicles.
Missed EV opportunities
For Honda, and many other traditional automakers still in the early transition stages, an EV is just seen as a car with a different drivetrain. It’s conceivable that Honda executives think they can wait out the transition period, and when motor and battery technologies are fully developed, just switch out the fossil fuel components. How difficult could it be?
That’s a mistake. Many automakers have found that adding batteries to cars originally designed for internal combustion engines doesn’t work well. It might speed up the development process, but the resulting product is often heavy, inefficient, and more costly to make.
When developed as an original product, EVs give automakers a chance to rethink the automobile and potentially reduce costs.
Consider Ford as an example. The Mustang Mach E has been a sales success, but not a financial one for Ford. The Mach E is based on a modified version of the platform also used for the Escape, a fossil fuel crossover. As Ford CEO Chris Farley indicated in a recent interview, earlier engineering decisions limited the product’s potential: the Mach E’s wiring harness is 70 pounds heavier than Tesla’s, to name one issue. Small mistakes like these add up in a product as intricate as an automobile.
Honda will also miss the opportunity for critical learning experiences. There’s the practical experience gained through both development and manufacturing, and there’s the development of new suppliers and supply chains. They will also miss valuable customer feedback—what do people really value in their EVs?
Sayonara, software-defined vehicles
Here, Honda is positioning itself to fail in the second disruption impacting the automotive industry: the software-defined vehicle, which can have its core capabilities upgraded over time.
Consumers, particularly those who purchase EVs from Tesla, Rivian, and BYD, have come to expect frequent updates, sophisticated infotainment software, and advanced driver assistance systems. Honda hasn’t made significant advancements in any of these areas.
Software-defined vehicles don’t have to be electric, but they often are. The large battery in an EV makes it easier to support powerful computers and allows over-the-air updates when the car is parked. Could Honda create a fossil fuel software-defined vehicle? Yes, but it’s unlikely for the same reason it’s retreating from EVs: the old ways are currently easier and more profitable.
What does Honda stand for?
Honda is facing an identity crisis. Fundamentally, it’s a company that excels at making internal combustion engines. Good engines, however, are becoming less significant.
Other characteristics of Honda vehicles are also being challenged. For years, the company has focused on producing driver’s cars—lightweight, efficient, and well-handling. But if cars drive themselves, what does a driver’s car even mean?
Leaving aside autonomy, I would argue the market for a driver’s car is limited. People are drawn to Honda for its reliability and reasonable pricing. The fact that they handle well is a bonus, possibly helping buyers decide if they’re torn between two brands.
However, EVs promise to be significantly more reliable than fossil fuel cars, and as Chinese automakers demonstrate, once battery prices drop, so do overall vehicle costs. If Honda can’t stay competitive on reliability or price, it risks losing consumers.
This seems to be happening in China, as Honda acknowledged in its recent earnings report. “Honda was unable to deliver products that offer more value for money than newer EV manufacturers, resulting in decreased competitiveness,” the company admitted. Challenges in China contributed to nearly $16 billion in losses last year for Honda. Without an EV strategy, it’s only a matter of time before Honda faces similar issues in other markets.